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Trying to pick market tops and bottoms has long been viewed as a
mugs game and the months of March and April showed why.

On 23 March, the markets turned. The Australian market had fallen
36.5% in a month, despite three days of large gains. If you tried to buy
anything in those few days, you were way down. Then markets turned (for now)?

We saw a few policy announcements that seemed like a big deal in
the context of the past, but markets kept falling. Then they let loose. The
Central Bank and government policies were enough to stabilise the situation and
we could look to the other side. From that point there seemed to be more
optimism about the virus (which in the US and Europe seems unfounded at this
point). However, it may be that the markets are reacting positively to a
greater focus on the economy as opposed to the virus. The consequences of
flattening the curve are now in focus and the policy mood has swung.

There are still a lot of unknowns and we expect more ups and downs
to come. The economy has been on hold, but the big question is what happens
when it reopens. Can we keep the virus spread down? Will they just let it go in
other countries? What will company balance sheets look like when the loan
repayment and rental holidays end and businesses have utilised the low interest
loans on offer? Will people be nervous to go out or will younger people fill
the streets?

The US equity market has performed much better than
Australia, yet Australia has done so much better containing the virus? Seems
odd when the falls were due to the virus or more appropriately, the health
policies implemented to deal with the virus.

In the US, the big five technology companies make up more than 20%
of the S&P 500. The big four banks are a similar weight in the ASX 200.
That tells the story.

We invest in four of the five big technology companies as they are
the highest quality businesses in the world today. Most of them have enough
cash on hand to fund the whole of the Australian government’s relief package.
Their greatest risk is regulatory action taken by governments, as these
companies have the rare attribute of being at the forefront of innovation and
able to continually widen the gap with the field. Previous incumbents tended to
rest on their laurels and get chipped away at over time by smaller, more nimble
competitors. When it comes to their share prices, they are not as attractive as
they once were, but patience is certainly a virtue when it comes to investing.

In the end, we would rather rely on Quality than the position of
the Tea Leaves. You know they will be there on the other side and it appears
for several of these companies, they will come out even stronger than they went
in.

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